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The Initial jump
Patrick Turner Affiliate Professor of Entrepreneurship INSEAD Asia Campus
Spoke to Balaji Pasumarthy about Entrepreneurship, Entrepreneurs and provided a lot of insights.
Any Facts and findings on Entrepreneurs?
According to the Global Entrepreneurship Monitor 2005, a study which is done across many parts of the world around 14.8% of people become entrepreneurs globally. In Thailand it is as high as 35% and in Hungary it is 4%. (Here we are referring to entrepreneurs who become so as an option not because they are not employable otherwise because of illiteracy etc.)
The average age of first time entrepreneurs is 35, not surprising because at this age the entrepreneur has experience, skills, and savings to start something on his own. 67% of them have at least a Degree as far as education level is concerned.
Why do people become entre-preneurs?
The primary reason given is that this is the best way to use their skills. The second most common reason is "Control their own lives" and third most common reason is to "Build for the family". "Earn lots of money" and "Gain Respect and Recognition" come only after these.
Entrepreneurs get their ideas mainly from their prior work experience; the second most common place for ideas is their hobbies. "An unfulfilled need" or "someone's suggestion" is not as common.
In a study of the 100 most successful entrepreneurs in America 71% had got the idea from their prior job, 7% had built it on a casual job, 6% from a "consumer want" that they experienced, 5% got swept into the PC revolution. Only 4% had got the idea from a systematic research.
According to an INSEAD study 91% of the entrepreneurs fund their ventures with their own money, 20% get funding from family and friends, 17% from Business Angels,15% from Venture Capital. Bank Funding is close to negligible at the initial stages.
What is the survival rate of new companies?
After one year? 81 %
Two? 65%
Three? 54%
Four? 46%
Five? 40%
The table shows the survival rate of new companies as measured in a s tudy in the US ten years ago . However other US studies have shown that only 6% of the companies that don’t survive end up in bankruptcies ; the others either get merged, bought out , or closed down in orderly fashion.
We have done a study on SME attitudes and what came out strongly about Indian SME owners is the high degree of preoccupation in interacting with the government administration, (basically corruption). It is also being said that entrepreneurship flourishes best in less ordered contexts, such situations provide more opportunities and you need to be smarter to get what you want. This is one of the things that the Singaporeans were worried about, in 2002 they concluded that Singapore was culturally not entrepreneurial for the simple reason that the government always encouraged multinationals and Singaporeans were taught to go to very good schools and basically learn to follow instructions. In 2003 Singapore named a minister with special responsibility for Entrepreneurship; they have been working very hard to change the culture. But it is very difficult in a squeaky clean environment where personal initiative and creativity is not favored; it does not tend to be a breeding ground for entrepreneurs. Whereas in India it is very difficult not to see opportunities all over. You combine opportunities like this and that the threshold for discretionary spending among Indian Consumers is steadily rising and you see a huge opportunity for entrepreneurship in the country. What is fascinating are industries like the wine industry in India, which is one of the fastest growing, an industry that did not exist before, companies like Grover Wines produce excellent wines. These companies have hardly scratched the surface of the Indian Market le t alone the world market. There are opportunities everywhere.
There is a lot of interest outside about India. In INSEAD for instance we have a course on "Building Businesses in India." India and Indian opportunities is often referred to in many courses
When talking about Entrepreneurship and the Eco-system for it, Stanford University comes to mind, what is special about this?
Stanford got there first. The state is very entrepreneurial minded, the ground was fertile , however what got it going was the Bayh-Dole Act which dates from 1981 or 1982 which allowed institutions getting part public funding to com commercialize the research results. T hat just opened a lot of opportunities and from then you started seeing a lot of university spin offs. This predates the Silicon Valley's big days. You couple this with how clusters work and that explains the Silicon Valley. It is not really a model, no one made a master plan, it was a co ming together of various things. P eople have tried to replicate this in various places like the Malaysian Penang Silicon Island, Silicon G len which is Glasgow and so on. I am not sure you can duplicate what happened in Sillicon Valley , but I am sure one can learn from what happened there . In the U.S. Researchers always find their own funding including Government funding. Whereas in France, r esearchers are all government servants with guaranteed salaries. So this means a different predisposition towards entrepreneurship, it is very difficult to create the correct predispositions for entrepreneurship. The circumstances are just too different. In this context what IIT-Bombay and IISc have done I find very interesting and they are far ahead of other incubators that I have come across. If you have an economy which is more and more knowledge based , and you accept the fact that universities are the repositories of knowledge, the two must come together.
Is there something different about entrepreneurs?
Most entrepreneurs who run their business once find it very difficult to go back. But there is no such clone of an entrepreneur. There is a researcher who classifies entrepreneurs as Buccaneers and Hunters . The Buccaneer goes to a new island pillages the island and then goes on to the next island, that would be the serial entrepreneur, the Hunter is quite happy to settle down in his farm and goes hunting for food for his family so that would be the kind who builds and stays with his own company.
If we link this with another research in the non-entrepreneurial area you have a simple classification of Promoters - who are in the employ of other people but who display entrepreneurial tendencies, so we are getting into the idea of intrapreneurship and on the other end of the scale we have Trustees, Trustees are not happy going outside the known context. Now Trustees are the kind of people who cannot be entrepreneurs. The point is that the line between Hunters and Promoters is pretty fine and you could potentially see people in companies who act in an entrepreneurial manner go out and start their own businesses. There has to be an initial jump, for Promoters to become Hunters.
You need to believe in yourself. Have credibility, get others to follow you, but this does not necessarily mean getting up and making fancy speeches, but what is crucial is the first jump. There are people like Richard Branson who are the folklore of entrepreneurship, people who start at a very early age, who take that jump more easily than others. They are born entrepren eurs who are going to do it any way . The question is how does a country get more people to get into entrepreneurship? Create more jobs and opportunities? How do you create situations where the jump happens more easily? This is desirable for the economy because there are several studies which show that the big companies are the destroyers of employment where as the new startups especially in the high growth areas are creators of employment. For instance Google has created jo bs in the thousands where as at the same time General Motors has been cutting down on its work force. So it is in society's interest to have this churn, and this has been established for quite sometime. For instance, already in the 1930s, Austrian economist Joseph S C humpeter talked about how new firms, doing new things or doing old things in different ways would replace old firms, and the fact that they would create new jobs was implicit.
It is clearly not desirable for everyone to become an entrepreneur but it is clearly in the country's interest to encourage more entrepreneurs because then you are maximizing the potential that the country has got. My guess is that 20-22% of the Indian working population do their own thing, more want to, where as in Singapore it went up from 5% to 9% and they were very happy with that. In Japan it is a lot less.
Is there a way to reduce Failure Rates for Entrepreneurs?
I think training reduces risk a lot. I am often asked if entrepreneurship can be taught? Surely entrepreneurs are born and not made? Again I think this is part of a mythology taking the examples of people like Branson who are exceptionally gifted. But then so was Mozart or Michelangelo but there are other people who can be trained to be musicians it is the same with entrepreneurship. What intrigues me is that if you have a brain tumor you go to an experienced surgeon but when you start a business you feel that you can do it without training. I think there should be some kind of Entrepreneurship driving license; may be a one week course on how to run a company.
If you burn up your money you are dead there is no second chance. There are accounting measures that tell you very easily whether a business is going to fail much in advance. People need to know these things before they start a business. Opportunity validation for instance is something lots of people do not do; if they just do this it reduces risk so much. Cash management and a support network of people whom you can go to for help would be two crucial areas that I would like an entrepreneur to know before he ventures out.
I do not like the idea of a burn r ate, the whole idea of ‘burning cash’ . The focus should be on spending as little cash as possible. If you can lease then do not buy if you can borrow then do not lease. Why do you need a new desk or an office to start off? When you start, Enthusiasm and Euphoria are the order of the day which is fine but they are not good bed fellows of common sense and thinking through the future. Too many times people decide to get into a 50-50 partnership, they do not look at what would happen if things do not work out. It is important to decide right in the beginning how you will get out if you do get into a paralysis in the partnership. With out being negative or reducing the enthusiasm it is important to figure out these things right in the beginning.
Issue BG67 Oct06
Spoke to Balaji Pasumarthy about Entrepreneurship, Entrepreneurs and provided a lot of insights.
Any Facts and findings on Entrepreneurs?
According to the Global Entrepreneurship Monitor 2005, a study which is done across many parts of the world around 14.8% of people become entrepreneurs globally. In Thailand it is as high as 35% and in Hungary it is 4%. (Here we are referring to entrepreneurs who become so as an option not because they are not employable otherwise because of illiteracy etc.)
The average age of first time entrepreneurs is 35, not surprising because at this age the entrepreneur has experience, skills, and savings to start something on his own. 67% of them have at least a Degree as far as education level is concerned.
Why do people become entre-preneurs?
The primary reason given is that this is the best way to use their skills. The second most common reason is "Control their own lives" and third most common reason is to "Build for the family". "Earn lots of money" and "Gain Respect and Recognition" come only after these.
Entrepreneurs get their ideas mainly from their prior work experience; the second most common place for ideas is their hobbies. "An unfulfilled need" or "someone's suggestion" is not as common.
In a study of the 100 most successful entrepreneurs in America 71% had got the idea from their prior job, 7% had built it on a casual job, 6% from a "consumer want" that they experienced, 5% got swept into the PC revolution. Only 4% had got the idea from a systematic research.
According to an INSEAD study 91% of the entrepreneurs fund their ventures with their own money, 20% get funding from family and friends, 17% from Business Angels,15% from Venture Capital. Bank Funding is close to negligible at the initial stages.
What is the survival rate of new companies?
After one year? 81 %
Two? 65%
Three? 54%
Four? 46%
Five? 40%
The table shows the survival rate of new companies as measured in a s tudy in the US ten years ago . However other US studies have shown that only 6% of the companies that don’t survive end up in bankruptcies ; the others either get merged, bought out , or closed down in orderly fashion.
We have done a study on SME attitudes and what came out strongly about Indian SME owners is the high degree of preoccupation in interacting with the government administration, (basically corruption). It is also being said that entrepreneurship flourishes best in less ordered contexts, such situations provide more opportunities and you need to be smarter to get what you want. This is one of the things that the Singaporeans were worried about, in 2002 they concluded that Singapore was culturally not entrepreneurial for the simple reason that the government always encouraged multinationals and Singaporeans were taught to go to very good schools and basically learn to follow instructions. In 2003 Singapore named a minister with special responsibility for Entrepreneurship; they have been working very hard to change the culture. But it is very difficult in a squeaky clean environment where personal initiative and creativity is not favored; it does not tend to be a breeding ground for entrepreneurs. Whereas in India it is very difficult not to see opportunities all over. You combine opportunities like this and that the threshold for discretionary spending among Indian Consumers is steadily rising and you see a huge opportunity for entrepreneurship in the country. What is fascinating are industries like the wine industry in India, which is one of the fastest growing, an industry that did not exist before, companies like Grover Wines produce excellent wines. These companies have hardly scratched the surface of the Indian Market le t alone the world market. There are opportunities everywhere.
| There are people who can be trained to be musicians it is the same with entrepreneurship. |
There is a lot of interest outside about India. In INSEAD for instance we have a course on "Building Businesses in India." India and Indian opportunities is often referred to in many courses
When talking about Entrepreneurship and the Eco-system for it, Stanford University comes to mind, what is special about this?
Stanford got there first. The state is very entrepreneurial minded, the ground was fertile , however what got it going was the Bayh-Dole Act which dates from 1981 or 1982 which allowed institutions getting part public funding to com commercialize the research results. T hat just opened a lot of opportunities and from then you started seeing a lot of university spin offs. This predates the Silicon Valley's big days. You couple this with how clusters work and that explains the Silicon Valley. It is not really a model, no one made a master plan, it was a co ming together of various things. P eople have tried to replicate this in various places like the Malaysian Penang Silicon Island, Silicon G len which is Glasgow and so on. I am not sure you can duplicate what happened in Sillicon Valley , but I am sure one can learn from what happened there . In the U.S. Researchers always find their own funding including Government funding. Whereas in France, r esearchers are all government servants with guaranteed salaries. So this means a different predisposition towards entrepreneurship, it is very difficult to create the correct predispositions for entrepreneurship. The circumstances are just too different. In this context what IIT-Bombay and IISc have done I find very interesting and they are far ahead of other incubators that I have come across. If you have an economy which is more and more knowledge based , and you accept the fact that universities are the repositories of knowledge, the two must come together.
| A lot of people fail because they do not know the basics. |
Is there something different about entrepreneurs?
Most entrepreneurs who run their business once find it very difficult to go back. But there is no such clone of an entrepreneur. There is a researcher who classifies entrepreneurs as Buccaneers and Hunters . The Buccaneer goes to a new island pillages the island and then goes on to the next island, that would be the serial entrepreneur, the Hunter is quite happy to settle down in his farm and goes hunting for food for his family so that would be the kind who builds and stays with his own company.
If we link this with another research in the non-entrepreneurial area you have a simple classification of Promoters - who are in the employ of other people but who display entrepreneurial tendencies, so we are getting into the idea of intrapreneurship and on the other end of the scale we have Trustees, Trustees are not happy going outside the known context. Now Trustees are the kind of people who cannot be entrepreneurs. The point is that the line between Hunters and Promoters is pretty fine and you could potentially see people in companies who act in an entrepreneurial manner go out and start their own businesses. There has to be an initial jump, for Promoters to become Hunters.
You need to believe in yourself. Have credibility, get others to follow you, but this does not necessarily mean getting up and making fancy speeches, but what is crucial is the first jump. There are people like Richard Branson who are the folklore of entrepreneurship, people who start at a very early age, who take that jump more easily than others. They are born entrepren eurs who are going to do it any way . The question is how does a country get more people to get into entrepreneurship? Create more jobs and opportunities? How do you create situations where the jump happens more easily? This is desirable for the economy because there are several studies which show that the big companies are the destroyers of employment where as the new startups especially in the high growth areas are creators of employment. For instance Google has created jo bs in the thousands where as at the same time General Motors has been cutting down on its work force. So it is in society's interest to have this churn, and this has been established for quite sometime. For instance, already in the 1930s, Austrian economist Joseph S C humpeter talked about how new firms, doing new things or doing old things in different ways would replace old firms, and the fact that they would create new jobs was implicit.
It is clearly not desirable for everyone to become an entrepreneur but it is clearly in the country's interest to encourage more entrepreneurs because then you are maximizing the potential that the country has got. My guess is that 20-22% of the Indian working population do their own thing, more want to, where as in Singapore it went up from 5% to 9% and they were very happy with that. In Japan it is a lot less.
Is there a way to reduce Failure Rates for Entrepreneurs?
I think training reduces risk a lot. I am often asked if entrepreneurship can be taught? Surely entrepreneurs are born and not made? Again I think this is part of a mythology taking the examples of people like Branson who are exceptionally gifted. But then so was Mozart or Michelangelo but there are other people who can be trained to be musicians it is the same with entrepreneurship. What intrigues me is that if you have a brain tumor you go to an experienced surgeon but when you start a business you feel that you can do it without training. I think there should be some kind of Entrepreneurship driving license; may be a one week course on how to run a company.
If you burn up your money you are dead there is no second chance. There are accounting measures that tell you very easily whether a business is going to fail much in advance. People need to know these things before they start a business. Opportunity validation for instance is something lots of people do not do; if they just do this it reduces risk so much. Cash management and a support network of people whom you can go to for help would be two crucial areas that I would like an entrepreneur to know before he ventures out.
I do not like the idea of a burn r ate, the whole idea of ‘burning cash’ . The focus should be on spending as little cash as possible. If you can lease then do not buy if you can borrow then do not lease. Why do you need a new desk or an office to start off? When you start, Enthusiasm and Euphoria are the order of the day which is fine but they are not good bed fellows of common sense and thinking through the future. Too many times people decide to get into a 50-50 partnership, they do not look at what would happen if things do not work out. It is important to decide right in the beginning how you will get out if you do get into a paralysis in the partnership. With out being negative or reducing the enthusiasm it is important to figure out these things right in the beginning.
Issue BG67 Oct06